Saturday, 31 January 2015

SYRIZA Crosses the Line

News on
Friday was dominated by the press conference held by Yanis Varoufakis, Greek
Minister of Finance, and Jeroen Dijsselbloem, head of the Eurogroup (and Dutch
Finance Minister).

There are
two elements about this press conference which need to be assessed. The first
is the purely theatrical aspect designed for the audience of SYRIZA’s political
supporters. This occurred at the end of the press conference, after kind words
of “constructive meetings” and “mutually beneficial relationships” had been
uttered.

Yanis
Varoufakis made a statement to the following effect:

We will cooperate with the International
Monetary Fund, the European Central Bank, and our Eurozone partners. However,
we will not cooperate with the Troika, which, according to the European
Parliament, we consider a “rottenly constructed committee”.

There are
two things obviously wrong with this statement. The first is that since SYRIZA
has no problem with the IMF, ECB and Eurozone creditors on a bilateral basis,
complaining about the Troika is illogical. They are exactly the same organisation;
the staff of the monitoring missions are employees of the creditors. You can’t
accept the legitimacy of the parent organisations (IMF, ECB, EC) but challenge
the legitimacy of the monitoring team.

In fact,
what SYRIZA is complaining about is its disagreement with a monitoring
mechanism for the loan agreement. And this is equally a non-starter. No
European or multilateral creditor will lend money to Greece without conditions.

The second
is that the insulting nature of the statement and the body language was obvious
to anyone watching the press conference. Look beyond the obvious fact that
Varoufakis is insulting Dijsselbloem, who acts as the Eurozone creditors’ head
of the Troika.

In this photo, Varoufakis is still playing by
the normal script of a press conference, but is delivering his “rotten
committee” statement.

Still 2: Varoufakis
laughing

In this photo, Varoufakis is chuckling as the
simultaneous translaction catches up and Dijsselbloem realises what has been said.

Still 3:
Shaking Hands

In this still, Varoufakis and Dijsselbloem
shake hands. The Greek finance minister is dressed in a casual manner which is
inappropriate for this process. Dijsselbloem leaves without statements.

The
political theatre here is obvious: Varoufakis against the Troika. But beyond the theatrics, let's look at the second element of this event: the substance of Varoufakis' declaration.

1.Greece will not request an extension
of the current programme, and will only negotiate on the basis of a new
programme it will define.

2.Greece will not accept any form of
loan conditionality which would be monitored by a monitoring mission from its
official creditors. (If you disagree with one Troika, you will disagree with
another).

3.Despite his sophistry about “the
European Parliament” defining the Troika as a rottenly constructed committee,
Varoufakis has deliberately and gratuitously insulted Greece’s Eurozone
partners.

If we take
these facts at their face value, then the conclusions are clear: there will be
no additional funds disbursed for Greece. It will have to default on its debt
by February, and will find it impossible to pay for regular government
operations, let alone SYRIZA’s campaign promises.

The damage
done by this press conference is clear:

·While mainstream press were praising
Greece’s “valiant stand against austerity” (fundamentally misunderstanding the
key issues in Greece) at the beginning of the week, by Friday night opinion
had started to harden against Greece and SYRIZA, and will continue to do so all
next week.

·Nearly all Eurozone partners,
together with the IMF and ECB, have warned that while debt maturities can be
extended, there is no question of a debt write-down. Ireland, Portugal, Spain,
France, Germany, Netherlands and Finland have come out against a write-down, as
well as against a European debt conference. Wolfgang
Schauble stated very coherently that “We’re prepared for any
discussions at any time but the basis can’t be changed. Beyond
that, it is hard to blackmail us.”

·Yanis Varoufakis himself left
Saturday afternoon for Paris for emergency talks with the French government,
trying to put out the fires his statements had caused. He was originally scheduled to leave next week.

SYRIZA does
not seem to understand some fundamental points about the operations of
sovereign states or financial partners:

a.Insulting your official creditors,
who have lent you € 252 billion of public funds to correct your own mistakes,
is not a good idea. It is certainly not a good idea when you are about to ask
them for additional loans and a write-down.

b.SYRIZA has never explained how it
will pay for its campaign promises, let alone manage the Greek economy. At
least not in any realistic terms. And aside from a barrage of ad-hoc policy
measures announced this week, they have still not announced their policy plan
in Parliament. (It is expected this weekend or Monday).

c.You can’t manage relations between
financial sector partners with the clever sophistries and empty platitudes with
which you teach an undergraduate seminar on Marxist economics.

d.It is pathetic that after 2.5 years
waiting for the day they would take power since the May-June 2012 double
election, SYRIZA is not better prepared, with a real, means-tested plan for
implementing their policies and managing Greek debt.

As a result
of this press conference, expect to see a major hardening of the European
response over the next few days. Minister Varoufakis will no doubt claimed he
was “misquoted”, and he has already back-pedalled or claimed he was misquoted several times over the last
few days. But no serious creditor believes that Greece will present a “mutually
beneficial solution”, and they are tired of Marxist double-speak and empty
rhetoric.

Also as a
result of this press conference, and the events of this past week:

·Expect bank deposit withdrawals to
accelerate. We should have a complete estimate for January 2015 soon, but preliminary
reports have mentioned withdrawals as high as € 20 billion (Lorenzo
bini Smaghi in the Financial Times).

·Greek banks now need to increase
their Emergency Liquidity Assistance (ELA) support from the Greek Central Bank.
Given the confusion over SYRIZA’s real intention, expect the European Central
Bank to restrict further ELA, unless Mario Draghi is feeling unusually
generous. I would not be. Greek banks are now technically insolvent, largely
due to the actions of their own government.

·Foreign and domestic investors are
already taking flight. The Athens Stock exchange plummeted. Several major
projects were either cancelled by SYRIZA or put on hold by the investors.

Alexis
Tsipras and Yanis Varoufakis came to power with 36% of the national vote, in an
election with a 36% absention rate. That is to say, they have won
2,246,064 votes, which is only 27% of all votes cast, and only 20.8% of the
Greek population. One would have hoped that they would govern with humility and
carefully-considered actions given the magnitude of the crisis and the
fragility of their own support. One would hope in vain.

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